SPX, INDU (and Gold): Market Reaches Inflection Point

The nature of the human mind is such that it wants to extrapolate the recent past into the immediate future.  This is why traders tend to get bullish near tops, and bearish near bottoms.  This is why, near the most recent top, the majority of traders were bullish.  But the nature of the market is such that, in most instances, by the time a trade appears obvious, it's usually the wrong trade.

A critical part of trading is the ability to prepare for, and sometimes act upon, the opposite of what seems obvious.  That's far from being the entire skill-set, but it's a key part of it:  You have to be willing to sell when everyone is screaming "buy!" and be willing to buy when everyone is screaming "sell!"

By way of example, one of our forum members commented (on Wednesday) about how I was holding my ground on the bear case, and I replied:

I've just made it a policy not to flip to bullish at resistance, unless there's an incredibly clear reason to do so -- and, from the perspective of the wave pattern, anyway, there isn't a good reason yet, since we could easily still be completing wave C of an ABC flat. The tricky thing is: C-waves are supposed to make everyone bullish -- especially in a flat, where they hold the A-wave low, then break the A-wave high and thus make a "higher low, higher high," which is almost universally considered to be bullish by technicians.

Since we were bearish at the most recent top, nimble bears likely captured enough profit on Friday's decline to assure that -- no matter what happens from here regarding the intermediate picture -- the most recent bear trade will end up in the "plus" column.

Regarding the intermediate term, bears can clearly be hopeful -- but newer traders probably won't understand that I was actually more bearish near the recent top than I am now.  Part of the reason for that is because both the intermediate-term (IT) bear count and IT bull count were in agreement to this point (see SPX 2-hour chart -- fourth chart below).  So, from the standpoint of both my preferred and alternate count, I was essentially assigning 100% odds to this recent decline.  But at this point, the bull and bear paths can diverge.

Thus, I believe bears should be a bit cautious now, since the market has not eliminated the bull options from the picture and we're still inside a multi-month trading range.  And since this ain't my first rodeo, I am well-aware that the information sent to us by the market from inside a trading range can be garbled and misleading.

In any event, there's nothing that screams "bullish" yet -- bulls will need to make a better case than they have with the recent price action.  I'm simply warning that bears should remain aware of the caveats and turn cautious now --but obviously, the bear case remains alive and well after Friday's monster sell-off.

Interesting to note that INDU just retraced roughly 70% of the last three weeks of rally in essentially one single session.  That's not typically a bullish signal.  So the bear count remains slightly favored, but the market may have more tricks up its sleeve, and I certainly wouldn't accept anything but clear, low-risk entries from here.

We'll start with INDU's chart.  I hesitated to even attempt drawing the potential bounce path (blue dashed line), since I have only a minor bounce at Friday's low to draw from -- but I gave it a shot anyway; just take that path with a grain of salt right now.

No change to INDU's trend line chart, except to note that the decline has, so far, found support at the trend line from the February lows.

Here's another way to look at INDU, which I found intriguing:  (continued, next page)

SPX and INDU: If Bears are Gonna Roar, then Now's the Time

If you're not a member of our private forum, then you're missing all the fun!  Just after the open on Wednesday, I alerted everyone to the fact that the rally appeared to be an extended fifth wave, and that it was likely nearing completion.  Then, shortly after the close on Wednesday, I published the following chart and suggested bears had the ball for the near-term:

I then published this updated version after the close yesterday -- and, based on where futures are now trading (they were slightly green when I first posted this chart), my preferred near-term target from Wednesday appears to be a done deal:

No change to the intermediate picture, and the next few sessions appear to be for all the marbles.  This is the best shot bears have had, and if they're going to make their counts happen, then now's the time.  Even in the event of the bull count, bears who followed the preferred count outlined on Wednesday should be able to exit for a small profit, and no worse than break-even:

Since we can never afford tunnel-vision in trading, let's take another detailed look at the bull option:

INDU shows some interesting patterns: (continued, next page)

SPX and INDU: The Moment of Truth Arrives

Still no material change, but this is where things get really interesting.  SPX and INDU are within spitting distance of prior highs, and those prior highs have already demonstrated that they represent resistance -- yet, of course, this is where everyone wants to feel bullish, since we've been rallying for a while.  I would caution folks against becoming too bullish unless and until the market can sustain a breakout over this resistance zone.

INDU and SPX could both support one more marginal new high for this wave, without violating the bear counts:

SPX:

Although I'm unwilling to favor the bull counts until resistance is claimed, I do always consider both sides of the trade, and try to look a few steps down the road.  On the bull side of the trade, each decline this month has been bought (so far), so let's end with a more detailed look at the bull count, in the event the market CAN break out here.  Do note that there are potentially enough waves for a complete triangle:

In conclusion, the moment of truth is here.  If this is a bearish corrective wave, then bears can allow one more minor new high, but do need to make a stand directly.  If it's a bull wave, then bulls have to show us that by powering through the prior resistance levels that they've struggled with on two occasions.  Either way, we should have some conclusive answers shortly.  Trade safe.

SPX and INDU: No Material Change

Still no real change to the past few weeks of updates, except to note that INDU has finally reached the red circle that was first noted on April 1:

SPX has reached the general C-wave target zone, but may or may not still have fourth and fifth waves left to unwind.  This is definitely not the clearest wave to try and micro-count at this moment, so I can't place too much faith in the very-short-term counts right now:

No change yet to the intermediate picture:

In conclusion, the market has essentially been trading in a noise zone for the entire year, and reading too much into micro patterns inside a noise zone can be an exercise in futility -- so we probably have to default to the larger view as our guideline and paint with broader strokes for the moment.

Intermediate-term, there's been no real change to the picture yet -- the declines have appeared impulsive, while the rallies have appeared corrective (to this point, at least).  Thus, there won't be any real changes until bulls claim 2120, or until the market creates a markedly new pattern.  Trade safe.

SPX and INDU: Potential Whipsaw Looming

There's no material change from last update, and the last couple sessions had the overlapping feel of a fourth wave.  The near-term pattern has left itself a couple options.

I'm sorely tempted to favor the path shown in black on the chart below, but it's almost TOO complex a pattern for me to simply come out and say "here's what's gonna happen."  Frankly, the last overlapping wave is extremely difficult to count (difficult even for a fourth wave).  The blue path represents the more conservative course, but keep a very close eye on the potential for SPX to roughly follow the black path.

The black path could see a "pop and drop" open, but the "pop" part isn't required.  As of the moment of this writing, futures are up a few points, but that may or may not stick, of course.

 
The big picture options remain as previously noted:

INDU's simple trend line chart also remains unchanged, with sustained trade north of 18,008 still the next hurdle for bulls to reach the red circle:

In conclusion, there is one decent near-term option for a continuation of the confusing chop we've seen over the past couple sessions -- this is represented by the black path on the first SPX chart, and that pattern would see at least two whipsaws in the immediate future.  The more conventional option (blue path) would simply head up to the target area while unwinding a couple small fourth waves along the way.

Bigger picture, at present we still have to give an edge to the bears, because the near-term waves still fit better with the bear counts, and so far there have been no real surprises.  I've outlined the bear arguments in detail for the past couple weeks, but I will continue tracking the bull options, because the fact is, we've been in a bull market for six straight years.  That's the essence of the bull argument right there -- but six years of bull market does mean that bearish stances are ill-suited to complacency.  For now, though, we'll just keep the bull counts on the back burner until bulls start showing more than the expected levels of strength.  Trade safe.

SPX and INDU Updates

I'm going to let the charts do most of the talking today.  Let's start with noting that the ending diagonal previously-discussed as the bull option no longer appears viable.  Now, that doesn't mean there are no bull options, it just means that the bull pattern would most likely be a triangle, not a diagonal.  A triangle would also explain the reason that the rallies have been corrective -- and the corrective rallies are largely what has led me to favor the more bearish options.

Now, that said, the declines have appeared to be impulsive, which doesn't fit the nature of a triangle, as both rallies and declines should be corrective in a triangle.  Therefore, I'm still inclined to favor the more bearish options, but this isn't a screamingly-clear call here...

Near-term, SPX has followed the "or (2)" path, and that wave may or may not be complete:

One market that leads me to continue granting bears a slight edge is TRAN, which has made new lows for the year:

INDU followed the near-term "best guess" path I laid out at the end of last month:

Note INDU's back test of the broken uptrend line. 

In conclusion, so far, there has been nothing truly unexpected from the market -- in fact, the potential for a double-retrace was outlined all the way back on March 27.  Due to the overall shape of the pattern, odds have to continue to be given to the bears, but we certainly can't say we haven't seen bulls pull out stranger upsets, so nothing would really surprise me at this point in the 6-year bull market.  If bears are going to turn things back down, then -- allowing for the possibility of another thrust to new highs to complete wave C -- the current zone is where that might begin.  Trade safe.

SPX and INDU: The Simple View -- Why Bears Currently Appear Stronger than Bulls

There's been no material change to the outlook, though the market continues to bounce like a dropped ball along 2039 support (each bounce has been lower than the last, as it may be burning through buyers at that support level).  Since there's been no change, let's refer back to Wednesday, which ended with two paragraphs:

In conclusion, I continue to believe that the market is on the cusp of a significant decline, and that bounces should be sold.  Again, though, I would be remiss not to mention that the market has yet to confirm this thesis (largely confirmed below 2039 SPX).  On the bull side, the first step for bulls at this point is to sustain trade north of 2089, though this would still leave bears additional options.

The bearish potential energy in this chart is now significant, and in the event that SPX sustains trade south of 2039, it is likely to produce a strong decline that may not let shorts back in, and may not let anyone attempting long positions out (except at a loss).  Third wave declines can be fast and relentless.

Moving on to the charts, we'll start with the big picture for perspective:

Zooming in on the near-term, there are enough waves in place for a complete rally to 2072:

What we cannot foresee, however, is whether the apparent abc to 2072 marks the final end of that wave, or if the rally wave will become more complex:

Do note that in the event that SPX holds 2053 and then breaks out directly north of 2072, then we might consider the potential that the C-wave is extending, represented on the chart below by blue "or (2)?":

INDU's chart covers all the options at once.  Whichever short-term path we take, the market still seems to be pointed lower; essentially until proven otherwise: (continued, next page)